The Birth of Network States: A conversation about network states, popularized by Balaji Srinivasan

about myself I have a VC fund I focus on network States and Charter cities right so these are two concepts that are linked right so I'm going to first talk a bit about the network state so we all have a Baseline and then I'm going to tell you why it's not the one thing that people are most surprised by it's not like something that's 10 or 15 years into the future it's already here there's already several functioning entities some even with diplomatic recognition and existing territory who has read the book by Balaji all right cool so which network states do you know or which ones can you think of know anyone prospera cabin now yeah these are some cool ones anthropolitan is I think the one that's most closely following the model of Balaji right and it's a very interesting model so for anyone who's new to this a network state is a highly aligned online community that has its own crypto economy and that has an in-person level of Civility right so these people are also intact in real life it's not just Discord servers and they eventually crowdfund territory right so kavandau is a good example so they have lands they're building their own cabins and then that's the key part eventually gain diplomatic recognition so you can become your own entity that has a degree of legal autonomy and of recognition that's interesting right so the subtitle of the book is start a new country now what many people don't know is that this is kind of an innovation on top of an existing model right so the model that was before the network States I would call the charter City or startup City model it comes a bit out of the seasteading movement patrie Friedman right so the idea is what if we can set up kind of new entities and do new experiments in governance right so we can make better laws we can have better ways to like fund public goods or things like that things that we also care a lot about in the web3 community and the first attempt was hey governments have all the territory in the world so where can we go and the idea was hey we can go into the ocean and build seapods right and have like floating cities some of those exist but the big problem with that was it was too expensive right so there's a lot of corrosion with like the bodies the floating cities that you need on the water so the next stage of the idea was what if we convince existing governments to form a public-private partnership and the model that was influencing that was Shenzhen in China to some degree Hong Kong to some degree Singapore to something degree Dubai so the model of special economic zones you get legal autonomy on a small scale to upgrade governance and attract business and attract and do growth and development what it worked fantastically well some of these cities grew in 30 to 50 cities from very poor Hinterlands into wealthy mega cities this is a charter City model and there's a couple of ones out there right so Prosper as one I live in prospera right it's on a Caribbean Island that's part of the country of Honduras and there's places like nkwashi in Zambia and new Charter city is Talent City in Nigeria in a free zone we also have a fellow here Florian who's getting a free zone status for a charter City in Zanzibar in Tanzania so it's an existing model and it's out there yeah and there's more things coming online this year which is really cool but bolaji came and it was like wait guys this is it's really really hard to get these Partnerships right this is sort of the most Enterprise sales you can possibly do right you have to go into multi-stakeholder negotiations with the biggest corporations in the world so that can take years you often need like existing relationships to build that kind of Leverage so that was like What if you are an ambitious founder and you don't have that you don't have the ability right now it will take you five to ten years to get this kind of level of partnership before you can do anything well what if you can already start right now and this is where Balaji flipped the charter City model upside down you can start with that community in the clouds right so you have a community that's highly aligned around a moral Innovation it's like hey we want to be like a keto or longevity-focused network State like that's what all binds us together or anthropology like the governance for Africans all over the world is really bad right so what if we help each other um get and get like a super app that helps us have our own economy what if we eventually get like an embassy that has IDs right so I experienced this myself so I was helping Ukrainian families get out of Ukraine when the when the war started but Ukraine had a lot of African students and they couldn't get out right so because there was no Embassy lobbying for them and in the EU the travel restrictions were were too harsh so this is where Republican comes in what if we can build that leverage that kind of recognition to help the people that are our members or in our Network state right so this is the idea of Balaji and only then when you have that leverage you're in a much better position to get these deals with governments right so what if you're like 20 000 people in Austin that are that are very high earning It's All Tech workers and hey we want this one thing can you change the regulations so we can do like our longevity or biohacking experiments that's the idea and I think it's a brilliant idea I think this can bring more startups to the starting line right it has already brought startups to the starting line like anthropolitan and like Praxis right so I'm a very proud member of anthropolitan I think they're on a very great trajectory too bad that shika and eche emole the founders are not here right now so I see it as my responsibility to show them a bit right now and if you want to hear a bit more about afropolitan go to their website afropolitan.io also I interviewed adshare on my podcast the stranded Technologies podcast where he's talking about his vision that's in four stages right so first you have a citizenship a citizen pass in anthropolitan that you can mint as an nft I think there's still 30 or 50 passes left out of the first 500. and number 91. and stand in the next stage they build a super app where people can connect and give each other help and services and organize events all over the world and in the third stage they want to get afro towns in different parts around the world right again so go to governments and use the Chinatown model hey we have a couple of people we want to have things a little different a little bit of autonomy in this way and this way kind of builds better governance for afropology members right so this is about the network State and I think right now it's actually a pivotal moment I'm personally hearing a lot about it right now right so I work with tons of people who have been in the um before it was called startup Society startup cities Charter cities they've been working on it for like decades but never has there been more of a more of a bus around it right it was absolutely they're absolutely amazed when they come through or when I come to conferences like this and now I have something to point to oh yeah Balaji and the network state right so with that said I just want to make one last point and then maybe you can open it up to questions because I'm sure it's a very New Concept to many of you so you have lots of questions but the one thing I also want to talk briefly about is where I'm based prospera so so in my View Prosper is the most advanced Network State even though it doesn't follow balaji's model it started more as a charter school but it is based on a Caribbean Island on the island of Roatan it's a beautiful island it has an existing legal system that's very Innovative it's called regulatory flexibility so it has a business registry you can start a business we are already doing biotech there and clinical trials we are already doing autonomous drone delivery we're already doing robotic construction it's going to be got a very futuristic entrepreneurial City it also has governance services so the creator of Estonia who created Estonia e-residency is the director of product for the prosperity governance platform and we have really cool territory it has about 200 Acres it's about the size of Monaco densely populated it could be 40 000 people so I'm a big fan of the community there I think what they do really well is they are doing really good job for the locals there they provide a lot of employment for local Hondurans that live on the island and entrepreneurs from the mainlands for whom it's a better environment to do business I'm organizing several conferences there on the islands the one that's most closest to what we're doing here it's a D5 conference on March 5 to 7. so if you go to infinitavc.

com you can find out all about that and visit us on the island it's a real stunning experiment experience yeah that's about me that about Network States and my two cents I would love to open it up to to a couple of questions from the audience yes just wondering in countries who have these states already existing like how does that work do they have their governments the coordination between like how do is it how come they're so Advanced that the government accepts starting these things or are they doing it independently yeah yeah so that's a good question so why do governments accept these deals right and why specifically in Africa right so the idea is it's super charging Economic Development and I was just talking about this today with someone in my podcast the key is that you generate local benefits so these zones they typically have a class in the public-private partnership that the local governments gets a tax revenue from the economic exhibits after Zone right so in Tanzania for example you got like a five percent um Revenue share of the economic activities and they also have an ownership share in the zone right so they have and prospered similar the Honduran government gets 12 of the tax revenue of prospera right so again the example that is closest to it is Shenzhen in China right so Shenzhen was rapidly developing and it proved to be an experiment that worked in other parts of China so other that they did more of these zones that basically delivered Economic Development to people it's a very good model and now specifically in Africa well Africa is there's many countries with lots of poverty this is where it could especially help supercharge Economic Development a lot of the problems in Africa as bad institutions and bad governance bad access to Internet to Wi-Fi bad access to electricity very often and very often yes so does corruption of the government like how does that what's the experience of corruption and these Network States how do these things mesh so the question is corruption in their work states right so Network States like existing States you know have people run them and people do bad things and there's bad actors so um there is of course it can come to corruption huh oh yeah yeah um so can corruption kind of hamper the development of network state of zones actually I think that's a very good question that's something very important to look out for right because um this is a bigger conversation but there is a longer history of special economic zones not many people know this but there's more than 5 000 maybe 10 000 special economic zones all over the world there's tons in Africa right many of them are good and fine they're like for manufacturing for export processing for tax advantages you know to do some kinds of businesses it's almost impossible with the existing legislation in the country there are others or very often they're prone to political influence or political favors and there's also examples of special economic zones in Laos for example in the border with China where you had reports of like you know very bad stuff going on corruption and human trafficking things like that so like anything else it's prone to Bad actors entering the space so we in the space in a network State space we need to be very careful and be and it's like any startup you need to do it 10 times better than the existing competition right so we got to be really careful that we do it right ethically and that we do it in a way that it attracts people to opt involuntarily and that it gives people options and that we get deals with governments that are kind of aligned on that Vision right so that's very important for the future of network States any other questions yeah where can I find out more information about the Prosper project find out more information about prospera prosper.hn prospera is Pro s p e r a dot h n what are you guys doing at prospera towards sustainability and food production yeah sustainability in food production and prospera prosper is a platform for entrepreneurs so we invite entrepreneurs to help us with all of these things whatever they think is a fit for that when it comes to sustainability specifically Roatan has one of the most beautiful and biggest Coral routes in the world so protection of the coral reef is anchored in the Constitution also what I think is a very good method of organizing comments is property rights in 3D on the blockchain right so whenever you're debating air rights or like building whatever that is easier and there's more liquid market for that right so you don't have to argue with governments can I build there or not build there it's much easier to form a Cooperative hey we want to kind of do our own national park that is governed by a Dao and is tokenized so I think the legal platform that of prospera is extremely well designed to make sustainability possible right and to create sort of better structures around that foreign and then what sorts of people become members of apropology so what kind of members are like who's uh who's the target member for prosper yeah the um Target member of anthropologist yeah yeah so nobody here for nephropolitan right so for anthropolitan it's mostly diaspora Africans I'm an exception right I'm not from Africa right but I'm interested in that ecosystem I'm a VC I want to help sort of entrepreneurs that use these platforms right but other than that it's diaspora Africans and Africans that suffer from Bad governance anywhere right when it comes to prospera um it's a bit the platform is mostly for entrepreneurs right so for entrepreneurs and anyone who wants to upgrade and improve their life right so about two-thirds of the people in prospera are from Honduras right so about half of them is local Islanders that do service work that work as security guards taxi drivers one of them is running a non-profit for a school to have local children and the other third is educated Hondurans from the mainlands right so their Alternatives typically to go to the United States to find opportunity instead they could come to prospera and hey I have opportunity here and I can help lift my own country out of poverty this is honestly what motivated me to join the community because this is a much this is like a spirit of hey this is our life's mission right this is not just a company we're building this is like a life's Mission and the other third is Internationals there is other Latin Americans involved to founders of Prosper actually from Guatemala and Venezuela and much of the stuff is American and European like me but it's an open platform anyone can join who thinks it is the right thing to upgrade their lives if we met in the future there are many networks days have you ever imagined uh is there any uh coordination ship mechanism Beyond those Network stays uh what relationship between them uh coordinationship and mechanism Beyond those space yeah yeah great so is there some kind of like you and yeah yeah so is that kind of coordination between Network States how do we want that to look in the future um actually that's why I'm doing what I'm doing with my VC I want to help kind of build a network of network States right because we're doing something fundamentally new we have 0.0 point something percent market share right and there's much more to gain for the network states to help each other than to compete in my opinion right I want to vastly increase the space of options and I think we can do that best by cooperating by being open source by sharing what we're sharing what we learned from each other kind of the legal templates how to you know what edge cases have you encountered like when it comes to ethics and how did you make your legal system work and you know we I want to share all this data together right the point of this is that we radically improve governance right we've just started this is just the beginning I think governance innovation has been has not happened for a couple of decades maybe hundreds of years in some area so I want this to become a movement where we can try out different things right so one network State might be more libertarian the other might provide more public goods funding and more government services and sort of a universal basic income example right so this would be I think the ideal places to test out what actually works in practice so I think this network of network States idea is very very important to me thank you um what do you think the biggest challenge is facing apropology will be in the early days the biggest challenge is for afropolitan um good question so I think they have a very compelling strategy I really like the clarity of their Vision right I think they're really taking the Balaji model and they're like hyper focused and executing at the same time it's a startup it's risky it's very hard to build a lasting business initially when you're very small right so part of the ambition is for example to build a community and then build a super app on top right so you have to almost build like multiple startups so I think that's the biggest challenge that you're trying to that they're aiming to create kind of multiple startups within one I think it makes sense it's a very coherent strategy but I think it's similar challenges to any other startup right that you initially face a lot of skepticism and you know you need to find the best talent in the world to execute really fast and grow and you know you're going to experience a lot of setbacks and you hopefully and I believe every partner has a great Community to um to pull it off thank you hi um what is the state of like the uh court system and uh criminal justice system and prospera yeah court and justice system and prosper very good question because actually one of the most important pieces right so prosperous aiming to build also a private arbitration Services right so and private insurance services so by default the regulation is that you need to have liability insurance both for you as a person and for your business right so that's the default and then you need to agree to binding arbitration and character as a dispute so you can select your arbitrator and your court for your business and for your personal activities that said right now there's only one Insurance of Last Resort which is Prosper itself and only one arbitration Court which is Prosper itself but you have the option to also use the ICC the international criminal court right so you can even sue prospera if you feel that they're violating their contract with you right so when you become a citizen of Prosper you have like a real social contract like not just a hypothetical one and Prospect can be held liable for that contract under international law right so it's both these things and kind of building a polycentric legal system within prosper it's a really really fascinating idea poliocentric law the author of much of the work is called Tom W Bell I had him on my podcast in episode seven it's really really fascinating but the idea is yeah you have more flexible legal options it's not like you're in one jurisdiction and one government can decide what you can and can do is that you have a say you need to be insured right so there's the incentives you know that you there's a common law based legal system so it's not that there's no regulations or anything right so in the opposite this is supposed to do ensure that there's even less of that behavior this way right so so if you're a citizen or what was the classification for someone that lives in Prosper yeah citizen I'm right now an e-resident but I mean the process to get full citizenship so if um in order to be a resident or as a condition of being an e-resident you are paying an insurance a personal insurance uh premium premium what the insurance premium is no sorry are you paying a monthly like insurance premium as a part of annual yes so e-residency is 130 a year full residency is one thousand three hundred dollars a year business incorporation is something like 300 for the entity and I think 225 for the insurance annually okay thank you for plus registered agents so cheaper than Delaware so same question but for police private police private police that was there on the island before it it's not a that's not an innovation that Prosper has can can individuals choose their enforcement as well well Prosper is kind of the customer right now of private police services for their own borders of jurisdiction right when it comes to kind of your own property within prospera um you know then I think you I'm pretty sure you do have the option to get Private Security Services yes all the way in the back on a similar note how does the tax system works are there incentives for it and also part two of the question house prospera sustainable because it's startups so I'm assuming there's not a lot of incoming money and how do they keep like there's you said they tax the people to keep it sustainable how does that work yeah so the first question was about the tax system in prospera the second question about is basically what's prosperous business model how do they generate income so the text question there's a five percent income tax if you're full Resident which is very good like that's why I'm gaining full residency there's no capital gains tax there's a 2.5 percent value-add tax on economic activities within the Zone which is opposed to 16 on the island of Roatan and there's a one percent tax on business Revenue which is kind of required for international compliance anyway right it's kind of like a stripe fee so these are the the three pillars basically of the tax system um and by Constitution the effective tax rate can never exceed 10 percent so that's one sort of income for prospera um I think the second one is from uh leasing land and real estate multiples right so I'm actually I've scheduled a podcast episode with prosperous Chief development officer to better understand that but from what I understand now a big part of the value proposition is hey we're going to take this lens that was uninhabited before and not very valuable generating a lot of production and we make it super productive right so that increases the land value by like 20 50 100 times right so they're capturing part of the increasing land value so that's an important component of it and the third part is they're also planning to set up or they have already set up as part we also why I'm there investment in some companies that are going to set up there right because they provide a lot of legal help they provide a lot of setup help right so they invested in in my BC fund right so I'm also indirectly generating revenue for them this way oh can you just tell me yeah thank you so what is the relationship between the let's say the government of Honduras and prospera which and it's independent or absolutely involved in the local yeah so Prosper is part of the sovereign country of Honduras right so Prosper doesn't have sovereignty right and I also discussed it with prosperous CMO we think by largest idea of sovereignty we don't necessarily need that and prosper doesn't want that right so it has legal autonomy um the limiting factors are Honduran criminal law and Honduran immigration law so under immigration and criminal law applies in prospera so that's those are some limiting factors prospera has the status of a special economic zone within the legal framework of Honduras that's part of the Constitution of Honduras right so they have a governing body that is authorized by the Constitution of Honduras that's also subject to oversight right so there are several levels of oversight over Prosperity entity but there are legal stability guarantees so the Honduran government can say oh we're going to change this now we don't like it this way or we increase taxes or whatever why because they've committed to an international treaty that says that the government can't interfere with investor security right so anything that can be construed as their endangering investment in prospera that you know that can be that the Honduran government could be held accountable for so that's the legal status of prospera no and what about the others uh cities you know maybe not prosperous but any of them like got like yeah like autonomy so um what about the other cities so Honduras is particularly interesting for there's one more Charter City in Honduras it's called ciudamo rasan also a big fan of it they are if prosperous kind of more the um the Silicon Valley style for Tech entrepreneurs peace for blue collar workers right so it's in a very dangerous part of the country and provides basic security service and affordable housing you can rent a one-family house there um for 120 a month which is crazy it's by slashing all the costs of building enough construction so Honduras has that framework and right now that framework is disputed unfortunately but Honduras allows generally private City developers or city developers in general to create that zone status what about other cities it depends on the country right so there are some countries with half precedent with free zones so Nigeria for example is far even aware of has free zones so Talent city is basically getting legal autonomy or Zone status under Nigerian law but it really differs Honduras is Right Now by far the best in the world when it comes to the kind of legal the quality of the legal status right and other countries many countries have the possibility to do these songs but it's much harder to get them or um they don't have as much legal autonomy right so um I know of another one in Zambia for example that has very strong kind of a very strong status also because they have very strong relationships with the government right so the former Finance Minister for example is involved so that's kind of the background that's again going back to what I said earlier it's very hard to get the status of these zones which is why Balaji said hey let's fight figure out a model where we can start earlier looking at time right thanks for very much I'll be around if you have more questions thank you foreign